NEW YORK – Investment bank William Blair said on Tuesday that it is downgrading Lucira Health from an "Outperform" to a "Market Perform" rating as a result of the changing dynamics of COVID-19 testing.
Analyst Brian Weinstein wrote in a note to investors that changes to the testing market in the US due to the vaccine rollout and the lack of demand for Lucira's at-home COVID-19 test led to the downgrade. It also led the bank to significantly reduce its revenue estimates for 2021 and 2022 before the firm's first quarter earnings call next week. The bank is now modeling total revenue of $43 million in 2021 and $68 million in 2022 compared to its previous estimates of $163 million in 2021 and $252 million in 2022. Volumes are now expected to be 860,000 in 2021 and 1.7 million in 2022 compared to 4.8 million and 8.4 million, respectively.
Weinstein noted that as testing trends slow, other companies with COVID-19 diagnostic tests have non-COVID-19 businesses "that are profitable and are in strong cash positions as a result of harvesting meaningful cash during the pandemic." They also "have made progress on emerging use cases for testing via government contracts, school testing, retail offerings, or even back-to-office campaigns that certain employers are using."
Emeryville, California-based Lucira, however, doesn't have another business to rely on and its test came to market later in the pandemic, meaning it didn't "bank the meaningful cash flow others in the space did." Although this isn't new information, the lack of "publicized, large-scale 'wins' over the last couple of months," combined with "the demand for testing starting to fall off faster than originally expected," the impact to Lucira modeling for the bank is more of an issue.
Weinstein also wrote that, although this information was known when Lucira went public earlier this year, "the commercial opportunities across healthcare settings, retail, back-to-office, entertainment, and others have not developed and do not seem likely to develop in the near-term."
Weinstein added that while an acquirer may look at the business and technology, that's not enough to justify the Outperform rating.
In early Tuesday trade on the Nasdaq, shares of Lucira were down 3 percent at $5.80.